Tax Court Clarifies Interplay of Tax and Bankruptcy Cases

The confirmation of two individuals’ bankruptcy plan didn’t reignite their tax case after it was paused when their bankruptcy petition was filed, the US Tax Court ruled Wednesday.

The ruling placed a limit on the Tax Court’s 1990 ruling in Moody v. Commissioner that a bankruptcy court’s confirmation of a taxpayer’s bankruptcy plan terminates an automatic pause that is placed on the taxpayer’s Tax Court case when the bankruptcy petition is filed.

In 1990, the court reasoned that confirmation of the bankruptcy plan had the effect of either discharging or denying discharge of the taxpayer’s debt.

However, the court ...